5 Mortgage Terms Every Home Buyer Should Know

As we start the loan process, I feel it's important that we go over a few mortgage terms that are an integral part of making an informed decision regarding your loan. These terms are used in regards to all Florida Mortgages, as well as most of the country.

While there is a myriad selection of mortgage products to choose from, including fixed-rate, adjustable, 30, 20, 15 year loans, etc., the following terms apply to them all and are therefore required reading for all prospective borrowers.

1)Interest Rate

Interest is expressed as a percentage of the loan amount charged by the lender. The higher the rate, the higher your monthly payments will be. Obviously, this is a case where less is more.

2)Annual Percentage Rate (APR)

Often confused with the Interest Rate, your APR reflects not only the interest charges, but includes other fees such as Points, Prepaid Interest, Loan Processing Fees, Doc Preparation Fees and Private Mortgage Insurance. In advertising, a lender usually quotes the Interest Rate, followed by the APR. The APR is generally considered the more useful of the two in making a borrowing decision.

3) Down Payment

Your down payment is the amount of cash you deposit toward the purchase price. It is the difference between the sales price and the loan amount. For example, if you like a home for $200,000 and qualify for a loan of $150,000, your required Down Payment will be $50,000.

4) Closing Costs

These are expenses you incur as a borrower at the time of closing. Costs include Points, Appraisal, Credit Report, Pre-Paid items, Title Insurance, Loan Processing, Recording, Attorney and Transfer fees. Often these expenses can be paid by the seller if negotiated up-front. Closing costs usually vary from lender to lender and buyers receive a Good Faith estimate of the costs of their transaction within 3 business days of applying for a mortgage loan.

5) Private Mortgage Insurance (PMI)

Generally required for Florida Mortgages with less than 20% down, PMI is a monthly expense that is paid to an insurer to protect the lender in case the borrower defaults on the loan.

There are literally dozens of mortgage terms that are used daily in the lending industry, but these 5 are of the upmost importance to borrowers. It is crucial to go into your loan selection with your eyes wide open and aware of the terminology being used.